The author thanks Bentley University for a summer research grant and an anonymous referee for very helpful comments.
The Intraday and Overnight Behavior of SPY Options and Adjusted Delta Hedging
Article first published online: 29 MAY 2012
© 2012 Wiley Periodicals, Inc.
Journal of Futures Markets
Volume 33, Issue 5, pages 443–468, May 2013
How to Cite
Simon, D. P. (2013), The Intraday and Overnight Behavior of SPY Options and Adjusted Delta Hedging. J. Fut. Mark., 33: 443–468. doi: 10.1002/fut.21558
- Issue published online: 5 FEB 2013
- Article first published online: 29 MAY 2012
- Manuscript Accepted: 14 MAR 2012
- Manuscript Received: 24 OCT 2011
This study examines the intraday and overnight performance of S&P 500 exchange traded fund (SPY) put options from May 2005 through April 2010. The basic findings indicate that deviations of put option price changes from projections based on Black–Scholes–Merton (BSM) deltas are often substantial and can be explained mostly by the negative relation between implied volatility and SPY returns. The study then examines the impact of adjusting deltas with out of sample estimates of the relationship between implied volatility and SPY returns on the profitability of intraday and overnight delta hedged short SPY put option positions. The findings indicate that these adjustments lower P&L volatility and improve measures of downside risk relative to both BSM deltas and deltas adjusted with the volatility skew. © 2012 Wiley Periodicals, Inc. Jrl Fut Mark 33:443-468, 2013